Behind The Early Morning Pop

S&P 500 futures popped about 4 points as retail sales, including sales ex-auto, were both stronger than expected. The Empire Manufacturing index was also stronger than expected. Producer Price Index was a bit higher than expected but inflation is not a big worry at the moment.


1) This is quadruple witching week (expiration of stock index futures and options, and stock futures and options), so expect some volatility.

2) Mixed news for credit card giant Capital One, which is trading down 1 percent pre-open.

The two metrics to watch for credit card companies are the net charge-off rate (the debts they believe they will never collect) and delinquencies (which fall into different "buckets," usually 30, 60, 90, and 180 days delinquent, with the 30 days delinquent considered an indication of future losses).

For Capital One, August net charge-offs fell to 9.32 percent from 9.38 percent in July. That's good news-however, accounts at least 30 days delinquent rose to 5.09 percent from 4.83 percent.

While it isn't clear what portion of the increasing delinquencies will fall into the charge-off column, this is clearly a bit of a problem, since last month better numbers--particularly from American Express--caused many analysts to increase earnings estimates.

We will get most of the other card companies reporting later today.

3) Best Buy falls 4 percent pre-open after a disappointing earnings report. Q2 earnings missed expectations ($0.37 vs. $0.42 est.) on weaker margins at its U.S stores as comparable store sales declined 3.9 percent and margins on laptop computers were under pressure. However, sales of flat-panel televisions and cell phones remained strong.

Despite its poor Q2 results, the electronics retailer sees customer traffic stabilizing. As a result it raises its full-year earnings guidance to $2.70-$3.00, but that remains inline with current analyst estimates of $2.87. Same-store sales are seen down 2 percent to flat.

4) Seeing improvements in end markets and continued restructuring benefits, Illinois Tool Works(ITW) is up 2 percent after raising its third quarter guidance. Earnings for the quarter ($0.48-$0.56) are now seen above estimates of $0.47.

While sales are expected to show low to mid-single digit growth when compared to the prior quarter, year-over year comparisons across all of its divisions are still pretty dismal: power systems down 37 percent, industrial packaging down 32 percent, construction products down 27 percent.

5) Kroger is down about 4 percent after missing Q2 earnings expectations ($0.39 vs. $0.44 est.) on a disappointing 2.6 percent rise in same-store sales.

Meanwhile, earnings for the full-year are now expected between $1.90 and $2.00, below the consensus forecast of $2.05, while same-store sales are projected to grow 3 percent to 4 percent.

6) Lubrizol is up 1 percent after boosting its full-year guidance. As volume trends improve and costs continue to be slashed, the chemicals maker raises its 2009 earnings outlook to $6.10-$6.40 from $5.70-6.00 vs. $5.92 est.

7) President Obama assured the country that "We're not going to see a trade war" with China, but the stock market shrugged those concerns off yesterday, though it was the major topic of the morning.



Questions? Comments?